Peranan Keputusan Hedging dalam Hubungan Risiko Nilai Tukar Rupiah dan Growth Opportunity terhadap Profitabilitas

This study aims to examine and analyze the effect of the risk of rupiah exchange rate and growth opportunity on profitability with hedging decisions as moderating variables. The risk of rupiah exchange rate is measured by exchange rate exposure, growth opportunity is measured by comparing MVE and BVE, and hedging decisions are measured by the dummy method, and profitability by net profti margin. The object of research used is manufacturing companies listed on the IDX during 2017-2019 periods. The sample selection used purposive sampling. Data analysis used linear regression analysis technique and MRA. The results showed that the risk of rupiah exchange rate had no effect on profitability, hedging decisions reduced the negative effect of the risk of rupiah exchange rate on profitability, and growth opportunity had a positive effect on profitability. Keywords: Risk of Rupiah Exhange Rate; Growth Opportunity; Profitability; Hedging Decisions.

Time-Varying Exchange Rate Exposure: A Case Study in Asian Emerging and Frontier Countries

Due to the potential adverse effects of exchange rate fluctuations on the economy, the exchange rate study has remained a significant subject of empirical investigation (Bartram & Bodnar, 2007; Iannuzzi & Berardi, 2010). Although there is a wide range of research, empirical evidence has shown mixed support for the theory of exchange rate exposure. The reason for this is that, for both developed and developing countries, the proportion of firms exposed to exchange rate movements is lower than expected by the theory. A study by El-Masry et al. (2007) on the UK, for example, non-financial firms reported that less than 30% of the firms sampled had significant USD and Japanese yen exposure. This was referred to as the puzzle on exchange rate exposure (Bartram et al., 2010; Bartram & Bodnar, 2007; Dimitriou et al., 2013; Hutson & Laing, 2014; Kang et al., 2016; Makar & Huffman, 2013; Takagi & Shi, 2011). Re-examining the previous literature on the traditional exchange rate exposure model based on CAPM shows that some previous studies in frontier and emerging markets (Bacha et al., 2013; Du et al., 2014; Jorion, 1990; Lin, 2011; Muller & Verschoor, 2007; Parsley & Popper, 2006; Verschoor & Muller, 2007; Ye et al., 2014) have paid less attention to some critical problems that could lead to inefficiency in the exchange rate exposure model to fully capture the exposure of the firm to the exchange rate. One of the issues is that the exposure to the exchange rate has had a time variance or is not constant over time. This is due to the fact that there is a potential instability of the risk exposure of the firm because the changing environment can affect the competitive position of the firm, the operational structure and the hedge strategies (Bartram et al., 2010; Parsley & Popper, 2006). Thus, it is unrealistic to assume that the exchange rate exposure of a firm remains constant over time, because the risk structure of any given firm will vary over time (Dominguez & Tesar, 2006; Pierdzioch & Kizys, 2010). For example, companies dynamically adjust their risk structures (e.g., exposure to exchange rate risk) in response to their internal and external environments. Therefore, this paper aims to investigate the time-varying exchange rate exposure of large non-financial firms' share returns in selected Asian and emerging countries to explore alternative explanations for the exchange rate exposure puzzle. Keywords: Exchange Rate Exposure, Time-Varying, Global Financial Crisis, Asian Countries, Emerging Countries, Frontier Countries

Factors Determining the Exchange Rate Exposure of Firms: Evidence from India

Exchange rate exposure is a strategic decision in finance and risk management at both the micro and macro level of business operations. Literature on the measurement, and management of this risk, has had no consensus on the factors affecting it as these factors seem to be dynamic. In an effort to consider a comprehensive study at the firm level, this article examines the exchange rate exposure of 271 constituent firms from the BSE S&P 500 index. The study period was 2001 to 2020 divided into sub-periods around the financial crises of 2008. The study uses two contemporary approaches (the capital market approach and the cash flow approach) and five relevant exchange rates (USD, EURO, GBP, JPY, and REER) to measure the foreign exchange. The sample firms were divided into 10 industrial sectors to identify the factors that lead to exposure of firms to exchange rate volatility. We use multinomial logistic regression to regress the select factors with the measured value of exchange rate exposure. The findings of the article suggest that multinationality, fixed asset utilization ratio, hedging activities, industrial sectors, size, and age of the firms are the significant determinants of such exposure. The results varied during the sub-periods and across industries.

On resolving exchange rate exposure puzzle: evidence from Chinese stock market

PurposeIt has been increasingly recognized that exchange rate changes affect the cash flow and the value of firms. Existing studies on exchange rate exposure do not have much success in finding significant exposure, and the failure to find this relationship empirically has been termed “exposure puzzle”. Motivated by the limited success in detecting significant exchange rate exposure in the extant literature, China's exchange rate regime reform in 2005, the increasing role of China's stock market played in the global financial market and its attractiveness in international portfolio diversification, the purpose of this paper is to resolve the so-called “exposure puzzle” and thus make a contribution to the literature by investigating whether the renminbi (RMB) exchange rate movements have any significant impact on China's stock market from the perspective of US investors who may want to diversify their portfolios with Chinese stocks.Design/methodology/approachSince previous studies which rely heavily on the standard Ordinary Least Squares (OLS) or seemingly unrelated regression (SUR) method of estimation with the assumption of constant variance of firm's or industry's returns do not have much success in detecting significant exchange rate exposure, in this study, we apply an asymmetric GARCH(1,1) with generalized error distribution (GED) model which takes conditional heteroscedasticity and leptokurtosis of asset returns into account in the estimation of first- and second-moment exchange rate exposure.FindingsUsing weekly data over the period August 10, 2005–January 1, 2020 on 40 Chinese sector stock returns, the authors find strong evidence of first-moment exchange rate exposure. In particular, 65% (26 out of 40) of sectors examined have significant first-moment exposures and 73.08% (19 out of 26) of these significant first-moment exposures are asymmetric. For the second-moment exchange rate exposures, they are less frequently detected with 20% (8 out of 40) significant cases. These results are robust to whether an unorthogonalized or orthogonalized bilateral US dollar (USD)/Chinese Yuan (CNY) exchange rate is used in the estimation.Research limitations/implicationsBecause this study concerns only with whether exchange rate movements affect ex post returns as opposed to expected (ex ante) returns, and given the significant exposures with respect to different risk factors found in the study, it is interesting to see if any of these risk factors commands a risk premium. In other words, a natural extension of this study is to test whether any of these risk factors is priced in China's stock market.Practical implicationsThe findings of the study have interesting implications for US investors who would like to diversify their portfolios with Chinese stocks and are concerned about whether the unexpected movements in CNY will affect their portfolio returns in addition to its local and world market risk exposures.Originality/valueThe study extends previous research on the first- and second-moment exchange rate exposure of Chinese stock returns by utilizing an asymmetric GARCH(1,1) with generalized error distribution (GED) model, which has not been fully exploited in the literature.

Petroleum and Food Sectors Lost Stock Returns against Investments in PSX

The impact of exchange rate exposure and market return on stock returns of petroleum and food sectors PSX listed firms has been investigated empirically. Two econometric models formulated based on the Jorion approach of the two-factor model have been analyzed for petroleum and food sectors stock returns, market return and exchange rate (i.e., USD) for the study period 2005-2012, which represent an era of military regime proceeded by the democratic government of Pakistan Peoples Party. A sample of 37 petroleum and food sectors listed firms have been evaluated by applying the unit root test and OLS multiple regression. Further, the Quandt-Andrews test of unknown breakpoint has been applied, which showed an extended structural break during the period 2007 to 2010. Additionally, the results revealed that the coefficients of exchange rate and market return are negatively related to petroleum and food sectors stock returns. Therefore, investors must take precautions before investing funds in stocks of food and petroleum sector firms.